Stock Market Regulator – Who are they & How do they function?

We will know about Stock Market Regulators & their function. SEBI is the share market regulator in India. We will understand about them also.

People who have power will always tend to dominate those who don’t. Such is also the case in the share market, and the Indian stock market is not an exception either.

There are giant corporate houses who are looking to devour small companies and put them out of business. That is why the Indian stock market has the Securities and Exchange Board of India (SEBI).

It is a stock market regulator that, in simple terms, ensure that there is some level of resistance from the small companies and sustain in this market of big corporate entities acting like sharks.

So, in this article, we will learn what is a Regulator in the Indian stock market and what are its primary objectives.


The Stock Market and its Participants – Overview

When a company issues its shares publicly, you can buy those shares for a certain amount. Now, if in case you wish to sell those shares, someone else can buy them. This entire phenomenon happens in a virtual market known as the stock market.

Now anyone who wishes to trade in the market maintaining the protocol is a stock market participant. However, we can differentiate the class of a participant in the following ways:

Domestic Retail Participants:

When it comes to the real core of the Indian stock market, the Domestic Retail Participants (DRP) are the pinnacle for its existence.

Now, in case you are wondering who they are; we are them – the regular traders. We buy and sell company shares every day and sustain the flow in the market.

NRI and OCI participants:

The roots of Indian residents spread across the world. There are Non-Resident Indians (NRI) and Overseas Citizens of India (OCI) who actively participate in buying and selling of company stocks based in India.

They too are pivotal for the smooth survival of the Indian stock exchange.

Domestic Institution Participants:

So far, we are only talking about the individual stock market participants located in various parts of the world.

You should know that business houses can also buy and sell company shares. Now, by Domestic Institution, we mean any form of a business entity based in India.

Life Insurance Corporation of India (LIC) is a fantastic example of a Domestic stock market participant.

Domestic Asset Management Companies:

As we now know that a company can also invest in stocks of other companies, there are Domestic Asset Management Companies as well. Now, these companies typically provide Mutual Funds.

HDFC Mutual Fund, ICICI Prudential, Reliance Mutual Fund are a few renowned companies who invest in trading stocks as a Domestic Asset Management Company.

Foreign Institutional Investors:

Just like the NRI living in foreign countries, a business that operates in other countries can also do stock trading. Such companies are Foreign Institutional Investors.

Now, it can be of any form like hedge funds, asset management agencies, or other forms of investment companies. These companies also play a significant role in maintaining smooth operations in the stock market.

No matter which classification you can label the participants, the underline factor is – everyone does stock trading to earn profits. There are two factors that compel a human being to take risks – fear and greed.

So, people tend to take the easy option when they can fall into traps. That is why the Indian stock market introduced a Regulator to keep things in check.


Who are Stock Market Regulators?

Most countries, nowadays, has a regulator to maintain the balance in the stock market. Ours is the Securities and Exchange Board of India (SEBI).

Stock Market Regulators in India

There are two primary objectives of the SEBI – first to look after stock investors from being exploited by giant corporations, and second it to ensure the overall development of the Indian Stock Exchange.

Apart from that, they make sure that the financial intermediaries and all the various categories of participants we have discussed get the fair share of benefits while trading shares.


What is the Role & Function of Stock Market Regulators?

As the stock market is most volatile, especially the Indian stock exchanges, it is the primary job of the SEBI to make sure every small company can float in the market.

Of course, it is up to the traders of which stocks do are willing to buy, but the SEBI ensure that those companies won’t go out of business.

Meanwhile, the following are the reason why the SEBI do exist:

  • There are two major stock exchanges in India – the National Stock Exchange, and the Bombay Stock Exchange. While any trader buys or sells a particular stock, a thorough inspection is performed by the SEBI to make sure that the transaction performed correctly.
  • You need a stockbroking agency or individual to do stock trading. Additionally, there are Sub-brokers to segregate the job correctly. The SEBI make sure that the operation remains hassle-free to all the parties.
  • One of the pivotal jobs of the SEBI is to make sure that the participants don’t get exploited in the market. Of course, they won’t interfere in the company affairs; however, there are fixed protocols to ensure fairness in every deal.

Apart from these primary functions that we explained above, the SEBI don’t let the corporate giants fight among themselves and exploit the market conditions.

To conclude, the SEBI wants an overall development of the stock market. Now, there are several forms of entities that the SEBI audit and maintain the regular flow of operations.

They have enacted specific rules and regulation for entities like Credit Rating Agency (CRA), Debenture Trustees, Depositories, Depositary Participant (DP), Foreign Institutional Investors, Merchant Bankers, Asset Management Companies (AMC), Portfolio Managers / Portfolio Management System (PMS), and Stock Brokers and Sub Brokers.


Conclusion – Stock Market Regulators

The SEBI ensures that all the participants and the companies get a fair business scope. The traders, in some ways, have the protection of the regulator.

As the SEBI has the aim to serve to the stock exchange, they enacted some of the rules and regulations which are not always beneficial to everyone in short-term.

However, those rules are for the greater good of the entire stock trading fraternity.


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